Bank Critic Goodman Sees Lending Chill in Mortgage Regulations

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(Bloomberg) -- Laurie Goodman, who says no analysts have been more critical of bank mortgage practices than her team at Amherst Securities Group LP, is siding with lenders when it comes to a flurry of new rules intended to protect homebuyers.

“We’re piling tighter standards on top of already tight credit standards, and because you have so many different entities responsible for making these rules no one is really looking at the interaction,” said Goodman, who’s based in New York and is a member of the Fixed Income Analysts Society’s Hall of Fame. “The combined effects could be devastating.”

The U.S. Consumer Financial Protection Bureau, Securities and Exchange Commission and Department of Housing and Urban Development are among regulators trying to reshape mortgage lending after poor underwriting contributed to a housing crashthat triggered the worst financial crisis in seven decades. The proposals include new tests on borrowers’ ability to repay, guidelines for servicers and rules on origination fees.

Lenders already have been tightening credit standards even as borrowing costs fall to record lows. With the housing market showing signs of stabilizing, after home prices plunged more than 35 percent from a 2006 peak, banks are opposing some of the proposals on the grounds that it will make it harder for them to extend loans.

The concerns raised by Goodman should be taken seriously because she’s not overly sympathetic to the banks, said Representative Brad Miller, a North Carolina Democrat who’s on the Financial Services Committee. Regulators should make sure that requirements intending to protect consumers against abuses don’t make credit unavailable to people who ought to get a mortgage and could afford a home, Miller said.

Proposed Piecemeal

“I don’t think we have to go back to Ozzie and Harriet mortgages of 20 percent down payment, 30-year fixed rate,”Miller said, referring to a television show that aired in the 1950s and 1960s.

“Everything is being proposed piecemeal and in isolation of other rule makings, so there’s massive amounts of uncertainty,” said Rod Alba, senior regulatory counsel for the mortgage markets division of the American Bankers Association.“What we fear is that pushing everything through the door at once is going to create massive burdens and confusion and is going to create the need to come back and fix a lot of the regulations.”